NH

N
N

N
H2N H
N

N
N
H O

NH

N O
H

Procurement in the
Chemical Industry
Key Challenges for CPOs
With more than 20 million people employed and annual
sales of $5 trillion, the global chemicals industry represents
one of the largest worldwide interacting industries deliver-
ing materials and substances to sectors such as agriculture,
automotive, construction, and pharmaceuticals. This also
means that changes in the chemicals industry are likely to
have an effect on a number of other industries.

While the chemical market is transforming and companies

need to adapt their businesses, processes and operating
models, chemical CPOs are facing new challenges.

It is therefore critical to understand the key chemical market

developments, how they will affect the agenda of chemical
CPOs and how these challenges can be faced successfully in
order to create a competitive advantage in the long run.
 Procurement in the Chemical Industry | Key Challenges for CPOs

Key Challenges for CPOs in the Chemical Industry 04

Value Contribution 06
Business Partnering 08
Digitalization 10
Views on Procurement within the Chemical Industry 12

03
Procurement in the Chemical Industry | Key Challenges for CPOs
Key Challenges for
CPOs in the Chemical Industry
The Chemical Market …
Market & Competition
•• Ongoing high cost pressure caused by
intensifying global competition
•• Very complex supplier portfolios: compa-
nies can be competitors and clients at the
same time
Global Organization
•• Chemical companies are further globaliz-
ing their businesses and evolving toward
centrally managed organizations
•• They actively pursue acquisitions to com-
plement their portfolios toward global
leadership positions
Emerging Technologies
•• The chemical industry is already pursuing
digitalization projects to achieve opera-
tional excellence
•• Consumer oriented companies are ex-
ploring new digitalized business models
04
•• Shortening value chains in Europe re-
quire global purchases of precursors with
higher supplier risks and uncertainties
•• Direct material suppliers’ asset structures
are moving, changing the attractiveness
of important suppliers
•• Simultaneously, organizations run effi-
cient initiatives for headcount reduction,
combined with remodeling all support
functions in shared service center struc-
tures
•• Asset-intensive companies achieve per-
formance improvements in production,
supply chain and asset management
•• Increasing automation in operational pro-
curement and higher importance of stra-
tegic procurement functions (e.g. RPA)
… and Challenges for CPOs
Value Contribution
“For 80%1 of CPOs
cost reduction and risk
management are top
priorities”
Business Partnering
“62%1 of CPOs increasingly
feel their teams lack the
skills needed to deliver their
procurement strategy”
Digitalization
“60%1 of CPOs
do not have a clear
digital strategy”
•• Additional savings in a mature
procurement environment
•• Best-fit supplier portfolio to reduce risk
and obtain best terms
•• Governance for a global mandate and
procurement compliance
•• Appropriate headcount, capabilities and
localization to act as a high performing
business partner
•• Digital strategy based on procurement objec-
tives and use cases supporting procurement
business targets
•• Implementation of tangible opportunities,
e.g. in IT systems, analytics and data mining
1
Source: Deloitte CPO Survey 2016
05
Procurement in the Chemical Industry | Key Challenges for CPOs
Value Contribution
Challenges for CPOs …
Advanced Indirect Sourcing
Special categories in the chemical industry
require special levers such as:
•• Packaging –
find counter strategies to deal with oli-
gopolistic markets
•• Logistics –
drive costs down through network opti-
mization and inbound logistics
•• Energy & Resources –
use demand optimization levers and
build trading capabilities
•• General Goods –
cover non-traditional categories such as
legal services and marketing
•• Technical Goods –
generate synergies across sites by stand-
ardizing demands (e.g. MRO)
06
Advanced Direct Sourcing
Due to current developments, sourcing
chemical products requires broad market
knowledge and strong procurement:
•• Changing asset structures –
new suppliers and supply arrangements
are needed and make-or-buy decisions
have to be reconsidered
•• Changing raw material base
(e.g. ethylene) –
requires strong procurement to choose
the right suppliers with the right feed-
stocks
•• Transparency –
establish early warning systems for sup-
plier health and increase supply chain
transparency
•• Changing supplier structures –
digitalization is reshaping suppliers’ com-
mercial front ends, so distributors will
lose or gain market shares
Supplier Management
Ensure close collaboration and assessment
of risks and performance
•• Supplier collaboration –
close, efficient and flexible supplier col-
laboration model, manage high depend-
ency on volume suppliers
•• Supplier risk management –
assess and track risk dimensions con-
stantly and implement a comprehensive
supplier risk management system with
predictive analytics and proactive alerts
•• Network –
deal with multi-dimensional relations as
supplier, customer and competitor
 Procurement in the Chemical Industry | Key Challenges for CPOs

NH

N O
H

NH
O

N
N
O
N
H
NH

N O
H
NH
O

N
N

N
H

… and what Deloitte can provide

Category and sourcing Practical sourcing Demand management Comprehensive supplier

expertise support capabilities risk management

•• Best practices for category-
specific strategies and sourc-
ing of chemical substances
and raw materials
•• Market knowledge and price
benchmarks
•• Support for tendering and
RFP processes
•• Preparing and conducting
negotiations, incl. training
•• Insight into suppliers’ produc-
tion, structures and network
(best-fit global supplier)
•• Cross-functional optimization
through engineers, lawyers,
marketing, etc.
•• Analytics to identify quick
saving approaches
•• Comprehensive risk manage-
ment approaches and frame-
work
•• Availability of risk manage-
ment experts for specific
supplier assessments

07
Procurement in the Chemical Industry | Key Challenges for CPOs
Business Partnering
Challenges for CPOs …
Global Operating Model
Right-size the organization and define
efficient localization concepts:
•• Right-sizing –
optimal headcount (operational, strategic,
admin & management) to balance value
contribution and efficiency on global,
regional and local levels
•• Localization –
define best concept with
- highly efficient shared service centers at
regional level for operations
- hubs for strategic procurement
(global, regional and local levels)
08
Governance, Compliance & People Capabilities
Stakeholder Management Build procurement team to implement
Procurement as ‘first line of defense’ and company strategy
to ensure global policy for interacting with
stakeholders and departments: •• Consistent professional development and
upskilling of procurement staff
•• Involve procurement in external spend •• Specific and comprehensive learning
throughout all categories and compendium
anchor it as one of the decision-makers •• Develop highly educated buyers to facil-
during awarding stage itate the cooperation with other depart-
•• Ensure predictive and automated cover- ments and clients internally
age of risks within supplier
assessment and manage process compli-
ance through permanent screening
•• Establish governance to exploit global
cross-organizational synergies
•• Establish global policy to enable coopera-
tion with stakeholders in category
management, process accountability,
controlling processes and KPIs
 H2N
N
N

N
N
H

O NH
O

NH
N
N
N O
H N
H

O
NH

N NH2

N
N
H

… and what Deloitte can provide

Best practices and benchmarks Capabilities and diversity Compliant assessment

•• Headcount and global procurement
operating model
•• Shared service center, hub and
localization concepts
•• Compliant strategic and operational
processes
•• Change and Stakeholder Management
capabilities and experts
•• Procurement training concepts and cur-
riculums, incl. qualification profiles
•• Development of procurement academies
and upskilling programs
•• Compliant procurement assessments
to identify gaps within compliant
management
•• Identification and assessment of
potential risks including counter actions

09
Procurement in the Chemical Industry | Key Challenges for CPOs
Digitalization
Challenges for CPOs …
Digital Strategy
Definition of the right comprehensive
digitalization strategy
•• Identify the business targets which can
potentially be systematically supported
through digital solutions
•• Define specific use cases, including imple-
mentation requirements for tools, data,
processes and capabilities
•• Build digital implementation roadmap
and calculate business case
10
Applications and Use Cases
Implementation of tangible applications
and use cases
•• Apply existing robotics solutions to auto-
mate operational procurement processes
(focus on non-value-adding processes)
•• Purchase-to-pay optimization with data
mining through end-to-end process inte-
gration to improve efficiency and gener-
ate net working capital
•• Analytics (sourcing and transparency) to
identify direct approaches for generating
savings (e.g. Linear Pricing Performance
(LPP) to identify direct approaches for re-
negotiations)
Procurement Systems
Remodel the procurement system land-
scape, covering all strategic and operational
procurement processes
•• Decide on system strategy (one size fits
all vs. best of breed)
•• One system to provide guided procure-
ment for all areas (direct, indirect and
services)
•• Connectivity to chemical platforms (e.g.
Elemica) and supplier networks
•• Integration of master data and delivery
schedules for direct materials
 Procurement in the Chemical Industry | Key Challenges for CPOs
O
NH

N NH2

N
N
H

NH
O

N
N

N NH
H O

N
N

N
H

… and what Deloitte can provide

Proven model for digital strategy Project experience for System selection and
development implementation implementation

•• Framework for strategic process
•• Use cases to support all relevant
procurement targets
•• Deloitte Greenhouse and Digitalization
Labs for strategy development and
alignment
•• Hypotheses for purchase-to-pay
implementation and identification
of improvements
•• Measures with high performing data
mining tools
•• Proven tools, methods and use cases
(e.g. LPP, spend and quantity analysis,
etc.) if required as a managed service
•• Best practices for definition of business
requirements
•• Market overview and assessment of all
leading software solutions
•• Project management and technical
implementation for leading software
packages (Ariba, Coupa, etc.)

11

11
Procurement in the Chemical Industry | Key Challenges for CPOs
Views on Procurement
within the Chemical Industry
Wolfgang Falter
Partner | Global Chemicals & Specialty
Materials Leader
“In Germany/Western Europe, we observe
a structural shortening of chemical value
chains. Petrochemicals, Fine chemicals,
Intermediaries are increasingly imported
from countries with feedstock, energy or
other advantages. This leads to higher
supply risks, volatility and lead times, as
well as new supplier structures. This trend
is likely to continue in the next few years.
Based on this development, strong pro-
curement within direct material sourcing
is needed to check supplier sustainability,
and early warning systems should be
established to assess supplier health and
increase supply chain transparency.”
12
Goetz Wehberg
Partner | Chemicals & Specialty Materials
Consulting Lead, Germany
“The Chemicals Industry is an integrated
business. Many customers are suppliers at
the same time. This is why digital strategies
require a new procurement service delivery
model. In an industry where blockbuster
product innovations are almost gone, pro-
curement is a key facilitator for building eco
systems and real partnerships. While the
patterns of digitalization are clear and rec-
ognized, we are in the middle of the ‘proof
of concept’ phase. Every CPO in the Chem-
ical industry is asked to be a driver of dig-
italization, while fixing the basics is a key
prerequisite.”
Michael Wiedling
Director | Sourcing & Procurement
Chemical Industry
“Indirect material spends tend to be around
30–40% in the chemical industry, but
procurement functions are not as highly
developed as in other sectors, such as the
automotive industry. The chemical indus-
try offers specific levers to optimize indirect
spend – technical goods can be consolidat-
ed globally, instead of being sourced on a
local level. Comprehensive coverage of all
general goods (e.g. legal and marketing)
enables a fully integrated procurement
function, so that high levers on the demand
side can be used within categories such as
energy, logistics and packaging.”
Stefan Weiss
Director
Human Capital Advisory Services
“In its procurement functions, the chemical
industry is faced with high requirements
regarding buyers - key challenge is to pro-
vide the right training concepts to enhance
special procurement functions. The best
way to do that is to set up procurement
academies and learning curriculums with
company-specific procurement courses,
which will ensure well-trained employees in
terms of strategic procurement, category
management, negotiation, etc.”
Thomas Hiller
Senior Manager
Sourcing & Procurement - IT
“The chemical industry is currently re-­
designing and re-organizing its IT land-
scapes – the key question chemical com-
panies are facing here is what type of IT
concept or system should be used – best
of breed or one size fits all? Integrated and
centralized IT systems should exploit all
opportunities and support users in their
everyday tasks. Apart from that, the focus
should also be on supporting all relevant
processes in order to decrease risks and
strategic procure­ment functions as well as
operational end-to-end processes”
13
Contact
Wolfgang Falter Götz Wehberg Michael Wiedling
Partner | Global Chemicals & Partner | Chemicals & Specialty Director | Sourcing &
Specialty Materials Leader Materials Consulting Lead, Germany Procurement Chemical Industry
Tel: +49 (0)211 8772 4912 Tel: +49 (0)211 8772 4878 Tel: +49 (0)89 29036 7998
wfalter@deloitte.de gwehberg@deloitte.de mwiedling@deloitte.de

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Issue 02/2017